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June 2004: A Financial Incentive for Building Owners to Install an Automatic Sprinkler System

There are thousands of buildings in the United States that were built involving building codes that did not require automatic sprinkler protection. Most of them now have grandfather status and are not required to install sprinkler protection throughout the building. All of the new building codes that are being updated require automatic sprinkler protection for new construction. The problem is for a city like New York where there is so little space available for new construction, the new building codes offer little in the way of requiring existing non-protected facilities to install sprinkler protection. As a result of 9/11 there has been some discussion about providing sprinkler protection throughout all existing buildings in New York City in excess of 100 ft. in height. This would be required to be completed within a 15 year period.

There have been several tragic fires recently that have caused loss of life including:

· Dormitory at Seton Hall University

· Nightclub fire in Rhode Island

· Nursing home in Connecticut

· High rise in Cook County in Illinois

All of these facilities were not protected with an automatic sprinkler system.

There was an outcry in the State of New Jersey after the Seton Hall fire. So much that the state offered interest free loans to the state universities to install sprinkler protection throughout the dormitories.

A recent study by the health care industry stated that approximately 4,200 nursing homes are either fully unprotected or need a major upgrade to their automatic sprinkler systems.

There are so many loopholes in building codes as to whether automatic sprinkler protection should be installed or not. For example, in the building codes for New York City, there are so many variables that determine whether assembly occupancies require sprinkler protection. The current building code requires automatic sprinkler protection for movie theaters that sell food. For theaters that don't sell food, don't have a curtain and allow less than a designated number of people, sprinkler protection is not required. This seems ridiculous, what does soda and popcorn have to do with defining an occupancy to determine if automatic sprinkler protection should be installed or not?

So what is the driving force? In most cases the building owners will not argue over the logic of protecting their building with automatic sprinklers. The main issue is cost.

Currently, when installing a sprinkler system in any building, the cost of the system is expensed out of the estimated life of the building. For a high rise building that would be 27.5 years and for a commercial building that would be 39 years. There really is no financial incentive to install a system because of the long payback. The insurance premium is swayed more these days on supply and demand of the markets and less on loss ratio and whether your facilities are all protected properly. After 9/11 most insurance rates increased 20% or more to make up for the losses of the insurance carriers. This played over into 2002 - 2003, where the rates increased again. Eventually new carriers entered the insurance market and the supply of insurance was so high the rates are now decreasing. The point is that insurance premium savings is usually not an incentive for a building owner to install a sprinkler system.

In 1986, the U.S. Congress approved the Modified Accelerated Cost Recovery System (MACRS), which shortens the depreciable life of assets, thus giving the business owner a quicker and larger tax deduction.

The Fire Sprinkler Incentive Act (HR184) of 2003 that has been introduced proposes the use of MACRS over a five year period instead of the current 27.5 or 39 year depreciation period.

The cost to retrofit an existing high rise ranges from approximately $2.00 - $3.00 per square foot. Note - it was estimated by NFPA that it would have cost approximately $20,000 to install an automatic sprinkler system at the Nightclub in Rhode Island that killed 99 people.

The SFPE Board of Directors announced in the May - June 2004 edition of the SFPE Today their support for Fire Sprinkler Incentive Act (HR184) of 2003. The article stated that the bill is assigned to the House of Representatives' Ways and Means Committee and that currently there are over 110 Democrat and Republican co-sponsors of the legislation.

You can go to http://www.sprinklernet.org/committees/legiscom/bills/hr1824.html for sample letters on how to contact your congressman or senator to support this act. Be sure to use your own words, original letters will be more effective.

We at Risk Logic are in full support of The Fire Sprinkler Incentive Act (HR184). If there is a financial incentive for building owners to install automatic sprinkler systems in their buildings, the more likely it would happen, and it would drastically improve the protection of the buildings as well as minimize the potential loss of life.

If you would like information on installing an automatic sprinkler system in your facility please contact us.